Is LG too late to play it smart?

After a calamitous 2010 in the mobile market,LG rang the changes. James Livesley talks to new LG head of marketing Alex Windle (pictured) about the Korean firm’s huge ambitions in the smartphone sector

To say it has been a rocky road of late for LG’s mobile division is probably something of an understatement. It once had a good story to tell. In the UK in 2004 its mobile products represented less than a percentage point of market share – the following year this grew to more like 10 to 15 per cent.

LG was even, in the words of one mobile dealer, “sexy” for a time, with its Chocolate product a good example of this sex appeal. But attractiveness last year seemed to turn to old age and wrinkles. The Korean company’s results for 2010 and fourth quarter, released at the end of January, reveal how much the shine had come off. Total handset sales last year fell by almost 25 per cent compared with year-on-year figures for 2009. The company posted a net loss of £145 million for the final quarter of the year, with handset sales-revenue down 15.2 per cent.

Evidently, there are problems with the company’s mobile product strategy. But where has it gone wrong?

In the UK, from less than one per cent of market share in 2004, LG climbed its way up by grabbing the middle market, becoming a serious contender with attractive mid-tier devices. But with the introduction of smartphones the market has become polarised, removing these mid-tier products and leaving LG behind. According to noises from retailers, nearly 100 per cent of contract sales this year will be from smartphones, and LG seems to be eating the dust of other manufacturers.

It is Fone Doctors proprietor Faisal Sheikh who says LG has lost its “sex appeal”. And if his insights are anything to go by, LG has a mountain to climb with consumers: “If it’s not Blackberry, HTC or Apple people don’t want to know. Samsung, Motorola, and LG are not really on the radar. They don’t desire LG mobiles.
“LG are like a poor man’s Samsung. There’s nothing exciting from them at the moment. Incentives aren’t selling, the product has got to be desirable enough.”

Slow

How has the manufacturer managed to fall this far behind in the eyes of consumers? According to one source, the company’s problems began with its slow reaction to the smartphone market: “Really, the problem is all about smartphones. It was not able to address what people wanted. They didn’t have a smartphone plan in place like the others did.

“Its whole future was based on great-looking feature phones, but it didn’t have the smart operating system. A host of other manufacturers were coming in but they weren’t quick enough to realise it.”

LG was slow to react to changing market conditions and, it is suggested, did not listen to its leaders on the ground in LG’s markets around the world. This seems backed up by executive resignations in Korea last year. In September the chief executive of LG Electronics, Nam Yong, resigned amid the declining mobile phone sales, and was replaced by Koo Bon-joon, formerly the head of trading firm LG International. Nam, who was appointed in 2007, resigned to take responsibility for the company’s poor management and performance, according to LG.

A quick recap of its second-quarter results from last year explains his decision: its mobile unit had once accounted for about one-third of the group sales, but contributed only a quarter of revenue in those July results. During that quarter, the mobile division had posted a record loss of 120 billion won (£67 million).

Departures

In the UK there were a string of departures. Sales and marketing director John Barton departed in April and was replaced by Jim Michel, now LG Mobile general manager. Head of marketing Jeremy Newing left the company, as did other senior personnel including fellow marketer Mike Tew, sales director for networks Christine Howard and general manager for retail and distribution Steve Fraser. The word is that staff at the manufacturer had become frustrated with the gap between what was expected in the UK market by Korean bosses, and the shortcomings of the product set.

Michel is now understood to be leading a divisional restructure that will see LG’s UK mobile business run with greater autonomy.

Newing was replaced by current LG head of marketing Alex Windle, who holds his hands up to the problems the manufacturer suffered last year: “It’s a very simple story. RIM overtook our number three spot by revenue. Last year we continued to perform well by volume sales, and actually grew broadly in line with the previous year. The issue is pure and simple: we were late to market with smartphones, so whilst the market took off, we didn’t have smartphones to sell, at a time when consumer demand started increasing. That’s where the premium cash was.”
The business has recognised its shortcomings and is already on the return path, insists Windle.

“By the back end of last year we launched two smartphones which did perform well for us – Optimus 1 and Optimus 7. They are our first serious foray into the smartphone industry.”
The mobile arm’s change of leadership in Korea was about making the most of LG’s other assets and making them pay in the smartphone market: “The entire focus of the business has been on building our smartphone portfolio, and what’s been happening in Korea is a series of restructures of the business to make sure we can get to market quicker and we make the most of the other assets in the LG portfolio. We have an LG chemical company and a screen technology company. We’ve made the most of those assets to start producing really good battery technologies as well as market leading screens.”

Rebuilding

The company’s hopes for 2011 – what Windle calls a “rebuild year” – are gradually being revealed. At CES in Las Vegas last month it launched the Optimus 2X with dual-core processor, claimed as the world’s fastest smartphone. It also launched Optimus Black, a super-slim smartphone with “the brightest screen in the market so you can see it in broad daylight”.
At the Mobile World Congress, happening as Mobile News hits desks, LG is unveiling a 3D smartphone, complete with a dual-lens camera for 3D recording.

Impressive, but will it shift units?

Windle insists LG’s 3D content plan will make it a desirable purchase. “The key to 3D is content. There are two elements we focused on, having taken on feedback from our consumers. Firstly, there is viewing content, not just movies, but content to ‘snack’ on. We are working with a number of content providers and partners, and there will be some exciting stuff. The second bit is 3D sharing – filming and sharing your 3D moments, so you’ve got a rich and compelling proposition for the consumer, and that will be the interesting story we’ll share at Mobile World Congress.”
Windle admits LG has to do more than just catch up with the rest of the market: it has to take leaps ahead for consumers to fall in love with the brand again. “That’s why with the phones we’re bringing to market, we’re really looking to demonstrate LG’s technology leadership again. Optimus 2X was first in market with the dual-core processor, and browsing speeds is the main issue consumers talk about. We’re looking at screen leadership and the light, slim design we know customers want. We are looking to lead in the areas that consumers feel are important. But just to be equal wouldn’t get us anywhere.”

Customers

From the marketing view, LG now has a job to do both with consumers and the market, says Windle. “We’re looking to make sure we have the channel marketing capability – as well as talking to the consumer we’ve got to make sure we get the basics right with our customers. We need to excite both.”

This means identifying and targeting new smartphone buyers. “Who are the next wave of smartphone adopters?,” poses Windle. “You’ve got most of the early adopters, all now have smartphones. We’re seeing it becoming more mass-market, and those are the customers everyone will fight for.”

Despite its poor 2010, LG claimed in its results that profitability improved as smartphone sales rose and loss-making sales were cut down. It is focusing on premium smartphones and “differentiated” tablet PC products, as well as “recovering cost competitiveness for feature phones”.

Ultimately, slow reaction to a changing marketplace cost LG dearly. Windle defends the company’s position: “We’re still a strong presence in the feature phones, pay as you go market, but the key is the more premium end, where there are higher revenues. It really is that simple.”

And he knows the task at hand: “We haven’t lost our consumers, we just need to remind them of what we’re good at.”